Chinese Growth Shows Signs of Flagging

Chinese economic growth showed signs of flagging in data released on Thursday as Beijing faces trade tensions with the United States as well as debt and pollution battles at home.

Industrial output and retail sales in the world’s number two economy slowed last month, while the central bank shied away from raising borrowing costs despite another hike by the U.S. Federal Reserve. “External instabilities and uncertainties are increasing,” said National Bureau of Statistics spokesman Mao Shengyong.

His comments come as weeks of negotiations between Beijing and Washington show no signs of a breakthrough, with Donald Trump due Friday to decide on whether to impose tariffs in billions of dollars worth of Chinese imports.

The U.S. president stoked trade war fears by suggesting he will impose the measures, saying “China could be a little bit upset” in an interview on Fox News.

China has pledged any tariffs will void progress made in the recent talks and has drawn up its own list of U.S. targets. “The trade friction does not solve any problem, it only makes the problem more complicated,” the NBS’s Mao said.

On Thursday, the NBS said output at factories and workshops expanded 6.8 percent year-on-year, from 7.0 percent in April and short of estimates in a Bloomberg News survey. The retail sector also slumped, providing some concern for leaders who are looking for consumers to drive economic growth and move away from the export and state investment-driven model.

Sales growth slowed to 8.5 percent from 9.4 percent in April. It was also well short of the 9.6 percent forecast by analysts and maintained a downtrend seen over the past 12 months.

The People’s Bank of China decision not to lift the amount it charges to lend to banks indicated officials may be changing policy to combat slowing growth, analysts say. The Fed hiked rates and lined up another two this year as the U.S. economy picks up. Previous moves by the U.S. central bank has prompted a similar move by Beijing.

“China’s new leadership was greeted by a much more challenging environment in 2018,” said Ting Lu, Chief China Economist at Nomura investment bank, adding Beijing would likely lower rates and pick up spending in coming months to shore up growth.

Ting called the slowdown “worse than expected” in the research note.

The deleveraging drive pushed by Beijing policymakers has had an impact, analysts say, pointing to flagging investment. Expansion in fixed-asset investment sagged to 6.1 percent for the first five months—from seven percent in January-April—and marking the slowest pace since 1999 when data collection began, according to Bloomberg News.

Even as the economic indicators fell, the statistics bureau spokesman said China’s economy was on the right track for continued growth in the second half of the year. “I’m fully confident China can achieve about 6.5 percent growth for the whole year,” Mao said.